A federal appeals court has rejected a major record label's effort to undermine the legal safe harbor provided to user-generated content sites by the Digital Millennium Copyright Act. Under that 1998 legislation, sites like YouTube and Flickr are immune from copyright liability as long as they promptly respond to takedown requests by copyright holders. The safe harbor has become a foundation of the Internet economy, allowing entrepreneurs to build new user-generated content sites without worrying about being held responsible for their users' infringing uploads.

Unsurprisingly, major copyright holders hate the exemption, and they've waged a decade-long fight to weaken it. In 2007, UMG Recordings sued the video site Veoh, making arguments that, if accepted, would effectively neuter the safe harbor's protection for user-generated content sites. The courts have been weighing UMG and Veoh's arguments for the last six years.

Thursday's ruling by the United States Court of Appeals for the Ninth Circuit was a victory for Veoh, decisively rejecting UMG's key arguments. The ruling preserves the broad protections of the safe harbor, but it will be cold comfort to Veoh's founders. Thanks in part to the costs of litigation, the firm was forced to declare bankruptcy in 2010, and is now a shell of its former self.

Dredging the safe harbor

UMG offered several arguments that, if accepted by the court, would have dramatically weakened the DMCA safe harbor. First, the company said the safe harbor only applied to bare-bones Web-storage services. The company argued that because Veoh automatically transcoded users' videos into different formats and made them available for streaming, it went beyond the confines of the safe harbor, which is only available to sites that store files "at the direction of a user."

The Ninth Circuit rejected this narrow reading. "The reason one has a website is so that others may view it," the court ruled. "These access activities define Web hosting – if the Web host only stored information for a single user, it would be more aptly described as an online back-up service."

A service provider is ineligible for the safe harbor if it has "actual knowledge" of infringing activity on its site but does nothing to remove the infringing material. UMG argued that Veoh's decision to have a "music" section on its site without licensing music from any major music publishers was a tacit invitation for users to upload infringing content. But the Ninth Circuit disagreed. "Merely hosting a category of copyrightable content, such as music videos, with the general knowledge that one’s services could be used to share infringing material, is insufficient to meet the actual knowledge" standard, the court held.

The upshot of the Ninth Circuit's ruling is that as long as a user-generated content site complies with the procedures specified in the DMCA, including promptly responding to takedown requests, it doesn't need to worry about liability if users upload infringing material without its knowledge. A site is not required to actively look for infringing material, or to implement filtering technologies to prevent it from being posted in the first place.

Unfortunately, even if a company is in the clear legally, major content companies can still try to destroy it with protracted litigation. The Veoh decision will make that tactic a little bit harder by giving future defendants a clear precedent to cite. But abusive litigation tactics like UMG's may continue to be a problem.

The ruling represents a victory for the Electronic Frontier Foundation, which filed a brief supporting Veoh in the case. EFF's Parker Higgins called the ruling a "big win for safe harbors" in a Thursday blog post.

Timothy B. Lee
Timothy covers tech policy for Ars, with a particular focus on patent and copyright law, privacy, free speech, and open government. His writing has appeared in Slate, Reason, Wired, and the New York Times. Emailtimothy.lee@arstechnica.com//Twitter@binarybits

Thank goodness for the EFF. The courts are now firmly established as a way for big-money corporations to destroy smaller competition. Until the courts are reformed to eliminate blackmail and deep-pocket destruction (perhaps through bonding and enforcement of loser-pay reforms) it's simply too risky to create content that threatens big-money.

How about when a company sues another, if the one suing has a substantially higher gross (or funds, such as in the bank or sudden generous donations), it has to pay for whoever lawyers the smaller one could reasonably afford on its own? That way you can't sue a company into the ground, and you can't kill its business during the lawsuits. (It will also stop frivolous lawsuits.)

It's not right that you can lose but still put the other guy out of business just because you have deep enough pockets to drag a case on for years. The winning party might as well have lost the case; the outcome is just as bad. Does no one see a problem with big companies lose-suing little ones into the ground? You can go in intending to lose and still accomplish your goal.

Don't even get me started on the ability of a small company to win when it initiates a suit against a larger one.

Thank goodness for the EFF. The courts are now firmly established as a way for big-money corporations to destroy smaller competition. Until the courts are reformed to eliminate blackmail and deep-pocket destruction (perhaps through bonding and enforcement of loser-pay reforms) it's simply too risky to create content that threatens big-money.

Time to change the game.

While I agree agree that reform is necessary, I don't believe that "Loser Pays" is going to fix the problem. In fact it could make it much worse. In Loser Pays, if you want to sue a large company, you better have the resources to pay for their lawyers if the court rules against you, even if they're wrong to do so. A company could easily intimidate potential plaintiffs by simply saying: "We're willing to spend millions on this case. Are you?" Basically it prices lawsuits completely out of the range of individuals. Who has those resources besides the rich and corporations?

While I agree agree that reform is necessary, I don't believe that "Loser Pays" is going to fix the problem. In fact it could make it much worse. In Loser Pays, if you want to sue a large company, you better have the resources to pay for their lawyers if the court rules against you, even if they're wrong to do so. A company could easily intimidate potential plaintiffs by simply saying: "We're willing to spend millions on this case. Are you?" Basically it prices lawsuits completely out of the range of individuals. Who has those resources besides the rich and corporations?

Admittedly IANAL, but I don't think it's that simple in "loser pays" systems. The court decides what is reasonable for the loser to pay, so if you bring one solicitor and they bring seventeen barristers they will almost certainly not be able to force you to pay all their fees. One of the things the judge decides on is the conduct of the parties, and if the richer side keeps spending money for no good reason except to try to bury you in fees, the court can decide that you shouldn't have to pay them all at the end of the case.

It seems a much fairer system to me than the one you've got at the moment in the US, where as far as I can tell you can be faced with bankruptcy while defending yourself even if the case brought against you is frivolous and has no hope of winning.

Apparently ARSTechnica's harbour isn't safe enough to let us see more than half of the article's photo? Where do I make a micro-payment to see the other half?

Can you explain what you mean here? The whole picture shows up for me.

Simple: there was some sort of delivery problem that kept the image from rendering fully... repeatedly over a span of many minutes. Even now hours later I'm still having to twiddle thumbs while articles and comments load at a snail's laziest pace. Judging from several other comments, I wasn't the only one to experience it. Judging from the utterly humorless way my comment was modded into obscurity, I suppose the majority got to the article late enough that they never witnessed it and thought I was a crank, or ARS readership is populated by more humorless fanbois than I realized.

(The problem is still ongoing and so bad that the site timed-out halfway through loading this comment into the textarea field for this edit... it truncated the last quarter of the original comment.)

Apparently ARSTechnica's harbour isn't safe enough to let us see more than half of the article's photo? Where do I make a micro-payment to see the other half?

Can you explain what you mean here? The whole picture shows up for me.

Simple: there was some sort of delivery problem that kept the image from rendering fully. Judging from several other comments, I wasn't the only one to experience it. Judging from the utterly humorless way my comment was modded into obscurity, I suppose the majority got to the article late enough that they never witnessed it and thought I was a crank, or ARS readership is populated by more humorless fanbois than I realized.

It wasn't particularly funny and frankly took what is essentially network issue into something totally different to make the complaint.

Apparently ARSTechnica's harbour isn't safe enough to let us see more than half of the article's photo? Where do I make a micro-payment to see the other half?

Can you explain what you mean here? The whole picture shows up for me.

Simple: there was some sort of delivery problem that kept the image from rendering fully. Judging from several other comments, I wasn't the only one to experience it. Judging from the utterly humorless way my comment was modded into obscurity, I suppose the majority got to the article late enough that they never witnessed it and thought I was a crank, or ARS readership is populated by more humorless fanbois than I realized.

It wasn't particularly funny and frankly took what is essentially network issue into something totally different to make the complaint.

You're bucking for a personal award of everyone's currently trending adjective for Prenda and John Steele.

Actually, I like this outcome. Veoh was originally fancied themselves as a Hollywood insider YouTube killer. But all of Hollywood was not onboard... remember YouTube videos that clicked through to Veoh? I'm quite happy that Veoh went down in defense of a greater good.

Thank goodness for the EFF. The courts are now firmly established as a way for big-money corporations to destroy smaller competition. Until the courts are reformed to eliminate blackmail and deep-pocket destruction (perhaps through bonding and enforcement of loser-pay reforms) it's simply too risky to create content that threatens big-money.

Time to change the game.

While I agree agree that reform is necessary, I don't believe that "Loser Pays" is going to fix the problem. In fact it could make it much worse. In Loser Pays, if you want to sue a large company, you better have the resources to pay for their lawyers if the court rules against you, even if they're wrong to do so. A company could easily intimidate potential plaintiffs by simply saying: "We're willing to spend millions on this case. Are you?" Basically it prices lawsuits completely out of the range of individuals. Who has those resources besides the rich and corporations?

If you have a solid case then you should sue. A small guy would not dare sue a larger firm if it had a weak case or a 50/50 chance of winning such as a weak patent or some such - which is only when case should come to courts. Look around how many case were waged between a small company against a large firm? It has consistently been a large media firms against a small guy's business practice it did not agree with - a loser pays system along with a strong concept precedence would easily make a large firm think twice - even if they were to push forward the large firm would likely be able to pay if it loses. But the benefit would be, such litigations where a large firm loses, would result in a withdrawal of litigation as a business practice to whip the small guy.I think the benefit would be greater overall than some incidental affect. The current scenario of excessive litigations should stop.

Apparently ARSTechnica's harbour isn't safe enough to let us see more than half of the article's photo? Where do I make a micro-payment to see the other half?

Can you explain what you mean here? The whole picture shows up for me.

Simple: there was some sort of delivery problem that kept the image from rendering fully. Judging from several other comments, I wasn't the only one to experience it. Judging from the utterly humorless way my comment was modded into obscurity, I suppose the majority got to the article late enough that they never witnessed it and thought I was a crank, or ARS readership is populated by more humorless fanbois than I realized.

It wasn't particularly funny and frankly took what is essentially network issue into something totally different to make the complaint.

You're bucking for a personal award of everyone's currently trending adjective for Prenda and John Steele.

Nope. I'm bucking to say that your first comment so totally irrelevant to the article.

Thank goodness for the EFF. The courts are now firmly established as a way for big-money corporations to destroy smaller competition. Until the courts are reformed to eliminate blackmail and deep-pocket destruction (perhaps through bonding and enforcement of loser-pay reforms) it's simply too risky to create content that threatens big-money.

Time to change the game.

While I agree agree that reform is necessary, I don't believe that "Loser Pays" is going to fix the problem. In fact it could make it much worse. In Loser Pays, if you want to sue a large company, you better have the resources to pay for their lawyers if the court rules against you, even if they're wrong to do so. A company could easily intimidate potential plaintiffs by simply saying: "We're willing to spend millions on this case. Are you?" Basically it prices lawsuits completely out of the range of individuals. Who has those resources besides the rich and corporations?

If you have a solid case then you should sue. A small guy would not dare sue a larger firm if it had a weak case or a 50/50 chance of winning such as a weak patent or some such - which is only when case should come to courts. Look around how many case were waged between a small company against a large firm? It has consistently been a large media firms against a small guy's business practice it did not agree with - a loser pays system along with a strong concept precedence would easily make a large firm think twice - even if they were to push forward the large firm would likely be able to pay if it loses. But the benefit would be, such litigations where a large firm loses, would result in a withdrawal of litigation as a business practice to whip the small guy.I think the benefit would be greater overall than some incidental affect. The current scenario of excessive litigations should stop.

I disagree. I believe loser pays sets up a Peerage type system where nobody would dare sue anyone of a higher social standing out of fear of being outspent by someone who can afford to shop for a sympathetic judge. We're better served by making sure we have well educated justices who make good decisions than by changing the law in this way.

...The panel also affirmed the district court’s denial of Veoh’s request for attorneys’ fees...

Dadlyedly wrote:

I disagree. I believe loser pays sets up a Peerage type system where nobody would dare sue anyone of a higher social standing out of fear of being outspent by someone who can afford to shop for a sympathetic judge. We're better served by making sure we have well educated justices who make good decisions than by changing the law in this way.

The fact is that rich and influential companies can crush start-ups and other small companies into insolvency just by suing them, even if the suit is frivolous. Loser-pays-the-tab legislation would cut down on the filing of a lot of frivolous or stupid lawsuits, like this one, because the plaintiff would know that if he loses the defendant will not go out of business because of astronomical attorney's fees. That would be the whole point. Only those suits that have a reasonable expectation of success should be filed in the first place, and such legislation would go a long way toward eliminating the kind of "bury them in paper" suits the big plaintiffs sometimes prefer. The "little guy" is no less prone to filing frivolous suits than the "rich guy;" indeed, so-called "class actions" often target rich defendants with spurious complaints. As well, anybody can "shop for a sympathetic judge"--whether you are the plaintiff or the defendant, rich or not-so-rich. In a civil suit, "loser pays" is the most fair and equitable outcome, imo.

...The panel also affirmed the district court’s denial of Veoh’s request for attorneys’ fees...

Dadlyedly wrote:

I disagree. I believe loser pays sets up a Peerage type system where nobody would dare sue anyone of a higher social standing out of fear of being outspent by someone who can afford to shop for a sympathetic judge. We're better served by making sure we have well educated justices who make good decisions than by changing the law in this way.

The fact is that rich and influential companies can crush start-ups and other small companies into insolvency just by suing them, even if the suit is frivolous. Loser-pays-the-tab legislation would cut down on the filing of a lot of frivolous or stupid lawsuits, like this one, because the plaintiff would know that if he loses the defendant will not go out of business because of astronomical attorney's fees. That would be the whole point. Only those suits that have a reasonable expectation of success should be filed in the first place, and such legislation would go a long way toward eliminating the kind of "bury them in paper" suits the big plaintiffs sometimes prefer. The "little guy" is no less prone to filing frivolous suits than the "rich guy;" indeed, so-called "class actions" often target rich defendants with spurious complaints. As well, anybody can "shop for a sympathetic judge"--whether you are the plaintiff or the defendant, rich or not-so-rich. In a civil suit, "loser pays" is the most fair and equitable outcome, imo.

Law suit costs are pay as you go, not in one lump sum at the end of a case. Any party with much more money can bankrupt the other party, no matter who pays at the end. It's a reimbursement, not funds held in escrow.

Thanks for this post. The opinion is actually an amended version of a Dec. 2011 opinion from the Ninth Circuit in the same case -- the court tinkered with some of the reasoning to bring it into line with the Second CIrcuit's reasoning in Viacom v. YouTube but otherwise didn't change anything as far as I can tell.

In cases like this, I'd love to see the damages be means tested against the revenue of the company. That would stop a lot of the drawn out legal actions by large companies designed to put their smaller competitors out of business. It would probably also stop a lot of frivolous law suits.

We need to rewrite the DMCA and say that ANYTHING can be uploaded as long as it is done for non-profit purposes on the part of the UPLOADER, not the service that they are using.

I'm fine with a service making money off 'copyrighted' content that doesn't belong to them as long as some points are valid:

1. They don't upload the content themselves, it is uploaded by their customers.2. They are only making money off ads. No subscriptions to the website in question that make you able to download things in 'higher quality' if you pay the service in question.

Really, the media companies need to realize that the consensus is coming down on the side of "Most of your stuff is crap!" and start giving people what they want: a service that allows them to download and listen/view ALL THEY WANT for one price per month, less than 30 dollars.